Colorado Legislation

We played a critical role in helping draft, provide legal support, and advocate for the nation’s first two enacted laws that limit political spending by partially-foreign-owned corporations in Seattle, Washington and St. Petersburg, Florida. The goal of this type of legislation is to plug the loophole that Citizens United created for corporations partly or wholly owned by foreign interests. Even if a company was founded in the United States and keeps its main offices here, companies are responsive to their shareholders, and significant foreign ownership affects corporate decision-making.

When we began working on this type of legislation in St. Petersburg in 2016, we used thresholds of 5% for a single foreign investor, and 20% for aggregate foreign investment. However, these levels are no longer considered state of the art. Since the passage of Seattle’s 2020 law, newer bills—currently pending in states such as New York, Massachusetts, and Minnesota, and in the U.S. Congress—generally follow the Seattle model to limit political spending by corporations owned 1% by one foreign investor, or 5% by multiple foreign investors. These thresholds reflect levels of ownership that are widely agreed (including by entities such as the Business Roundtable) to be high enough to influence corporate governance.

As the Center for American Progress has noted: Foreign interests can easily diverge from U.S. interests, for example, in the areas of tax, trade, investment, and labor law. Corporate directors and managers view themselves as accountable to their shareholders, including foreign shareholders. As the former CEO of U.S.-based Exxon Mobil Corp. stated, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”

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The current 5%/20% thresholds that Colorado bill SB21-177 would apply to non-governmental foreign owners have long been known to provide fairly narrow coverage. Research that we conducted with Professor John Coates of Harvard Law School in 2016 found that:

• Only one in eleven (9%) companies in the S&P 500 had one or more foreign institutions each owning 5% or more blocks of stock.
• Only three had foreign institutions with more than 20% blocks.

The point is that the bill would provide some very modest benefits for Colorado’s democracy, but it is inadequate to the task.

In FSFP Legal Director Ron Fein’s written testimony, he provides the following recommendations for the bill:

1. Upgrade the thresholds for a “foreign-influenced corporation” to 1% ownership by any foreign owner (not just a foreign government) or 5% (not 20%) aggregate ownership by multiple foreign owners.
2. Expand the definition of “foreign owner” to also include a corporation or similar entity that is owned at least 50% by a foreign government, foreign political party, foreign business entity, or foreign national.
3. Clarify that actual foreign participation in corporate decision-making regarding political activity will also trigger “foreign-influenced” status regardless of ownership levels.
4. Expand the definition of “foreign-influenced corporation” to also include other legal structures for business entities such as LLCs, partnerships, and so forth.

Report by John C. Coates, Ron Fein, Kevin Crenny & L. Vivian Dong

Since the Supreme Court’s 2010 Citizens United decision invalidated restrictions on corporate political spending, considerable public and policymaker interest has developed in the potential for U.S. elections to be influenced by foreign interests through U.S. corporations. On the one hand, existing federal law (the Federal Election Campaign Act) already prohibits political spending in federal, state, or local elections by corporations that are incorporated outside the U.S., or which have their principal place of business abroad. On the other hand, current law still allows substantial avenues for foreign influence over corporate political spending by U.S.-incorporated and -based corporations.

Lawmakers in Congress and members of the Federal Election Commission have expressed interest in addressing this phenomenon. As of yet, federal reform proposals have failed to advance. A more likely near-term prospect for new policy measures is at the state and local level. Local governments (notably in St. Petersburg, Florida) are now contemplating measures to address this concern.

This paper focuses on ownership of significant blocks of stock as a potential mechanism for foreign influence over corporate political spending. We found that roughly one in eleven (9%) companies in the S&P 500 has one or more foreign institutions each owning five percent or more blocks of stock, nine have foreign institutions with ten percent or more blocks, five have a foreign institution with more than fifteen percent, and three have foreign institutions with more than 20% blocks. Three firms have multiple foreign institutional blockholders. This is the first recent empirical analysis of the level of foreign institutional blockholder ownership of publicly traded corporations.

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